FTC and States Unite to Fight Fundraising Fraud

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The Federal Trade Commission today announced "Operation Phoney Philanthropy" - a law enforcement and public education campaign by the FTC and state charities regulators to stop fraudulent fundraising. Fraudulent solicitors prey on the good will of donors and misrepresent who they are and what they do with the money they raise. They often pick the most popular charitable causes - support for police or firefighters and their families, veterans, and terminally ill children - to finagle funds from sympathetic and community-minded individuals. "By diverting donors' charitable dollars, these scam artists undermine the public's confidence in legitimate charitable fundraising, and injure legitimate nonprofit organizations that are competing for charity dollars," said Howard Beales, Director of the Federal Trade Commission's Bureau of Consumer Protection.

The FTC has filed five actions targeting companies and individuals that allegedly used deception to exploit well-intentioned individuals and businesses. In addition to the FTC cases, 34 states are joining in "Operation Phoney Philanthropy" by announcing law enforcement actions, consumer education or new legislation. "Making a donation to charity is an important way for many of us to give back to our communities," said North Carolina Attorney General Roy Cooper. "Unfortunately, some scammers try to take advantage of consumers' willingness to help those in need. We're keeping a vigilant eye out for these shameless rip-off artists."

"The United States is the most giving and caring country in the world," said South Carolina Secretary of State Mark Hammond. "Because of this, we must guard against people who want to take advantage of our generosity and violate the public trust. By participating in Operation Phoney Philanthropy, I am continuing my office's policy of relentlessly pursuing charity and telemarketing fraud to protect our charitable donations."

Thirty four states are joining the FTC in an education campaign to promote wise giving choices by consumers. Sixteen states are announcing 24 law enforcement actions, and two states are announcing the introduction of legislation. These actions and education initiatives emphasize that consumers need to check out charities before they give, to make sure that their donation dollars support the causes they believe in rather than the unscrupulous individuals who claim to represent them. With contact information available on the Internet, consumers can check out a charity before they give, and make sure that their contributions will support bonafide charitable endeavors.

Phoney fundraising appeals - often made over the telephone - target both consumers and individual business donors. The cases announced today by the FTC and the states cover a range of deceptive tactics to solicit donations. For example, telemarketers for groups with names related to law enforcement or firefighters play on the natural generosity of concerned citizens to support their local protectors. In one case announced today, the individual defendant created and controlled sham nonprofit corporations with names like "Firefighters' Assistance Foundation" and "Police and Sheriffs' Support Fund" and used those entities to collect millions of dollars in donations from unwitting, generous consumers.

In other cases, telemarketers misrepresent that donations will go to benefit the donor's local community, or that donations will support particular programs, such as helping homeless veterans. Deceptive telemarketers also target businesses to support worthy-sounding causes, like buying ads in law enforcement journals or purchasing items such as children's activity books to be donated to local hospitals for use by sick children. That was the case in two of the FTC cases announced today, where generous businesses who thought they were supporting law enforcement or helping sick children actually just were supporting for-profit businesses engaged in deception.

According to the FTC, consumers who hear such promises of local benefit or particular program support, especially in a telephone solicitation or other high-pressure donation situation, should take the time to verify the claims. Ask the solicitor how much of the donation will go to support the described programs. Call the local police or other group to make sure that they will really benefit from a donation. Check on the charity at www.guidestar.org and report any deceptive solicitations to the appropriate state charities office and/or the FTC at 1-877-382-4357.

"OPERATION PHONEY PHILANTHROPY" FTC LAW ENFORCEMENT:

Community Affairs, Inc.

Community Affairs, Inc. (CAI), also known as Powertel and Mountaineer Teleservices, and its principals, Christopher Heins and Luis Ferreira, operate a for-profit professional fund-raiser that contracts with at least 75 nonprofit organizations nationwide to solicit donations on their behalf, according to the FTC. The defendants are based in Pompano Beach, Florida. The FTC alleges that CAI charges its clients, which include the Virginia Firefighters Foundation, Texas Fraternal Order of Police, and Children's Cancer Assistance Network, between 75 and 90 percent of the donations it collects. The FTC's complaint alleges that CAI's telemarketers mislead donors by falsely representing that: the caller is a member of a law enforcement, police, or firefighter organization; the contributor has a previous relationship to the charitable organization for which the defendants are soliciting funds; and all, or substantially all, of the money raised goes to the charity or to specific programs. (Complaint filed in the U.S. District Court for the Southern District of Florida, in Fort Lauderdale on May 7, 2003. FTC File No 022 3265; Civil Action No. 03-CIV-60852. FTC staff contact: Stephen Gurwitz or Sarah Anne Cutler, Bureau of Consumer Protection, 202-326-3272 or 202-326-3367). The FTC has set-up a hotline number (202-326-3444) for the Community Affairs case.

West Coast Advertising

West Coast Advertising & Marketing, Inc., and its principals, Mike S. Thomas and Mark A. Christiansen, solicit contributions on behalf of a variety of nonprofit organizations, including the Junior Police Academy (JPA) and the American Veteran's Network (AVN), a program of Shiloh International Ministries, according to the FTC. The San Diego-based company also does business as MTI, MTI Publications, Professional Fundraisers, and Professional Communications Network, and maintains offices or phone rooms in San Diego, San Marcos, and Escondido, California, the FTC alleges. The FTC's complaint alleges that the defendants' telemarketers falsely claim that: JPA is officially connected with a local law enforcement agency that sends police officers into the donor's state and local schools to conduct programs that benefit children; and donations to AVN will support particular programs that benefit needy veterans. (Complaint filed in the U.S. District Court of the Southern District of California, on May 14, 2003. FTC File No. 022 3301; Civil Action No.03-CV-0980 IEG (POR). FTC staff contact: Eleanor Durham or Thomas Rowan, Northwest Region - Seattle, 206-220-6350).

DPS Activity Publishing, Ltd.

DPS Activity Publishing, Ltd., doing business as Healing Hands Busy Book, is a for-profit Canadian company that publishes and markets activity books for children for donation to hospitals in small communities throughout the United States, according to the FTC. The FTC alleges that its principals are David Suggitt, also known as David Sumner, Tabea Suggitt, and Mary Ann Wilson-Rennick, also known as Mary Ann Wilson. The company charges $5 for each book and sells the books through telemarketing and its Web site, www.healinghandsbusybook.com, according to the FTC. The FTC's complaint alleges that when telemarketing the books, the defendants falsely represent to businesses in small communities that they are affiliated with or authorized by local hospitals in those communities to solicit sales of the books on their behalf. The complaint also alleges that the defendants falsely represent that children in those hospitals will actually receive the books purchased. The complaint further alleges that the books purchased for donation are either never delivered to the hospitals or will never be distributed to children because the hospitals to which they are donated have no use for them. (Complaint filed in the United States District Court for the District of Western Washington at Seattle, on May 12, 2003. FTC File No. 032 3091; Civil Action No. C03-1078C). On May 13, 2003, the U.S. District Court entered an ex parte temporary restraining order that stops mail sent to the defendants in Canada from mail drops within the United States, and prohibits defendants from making misrepresentations when telemarketing their activity books. FTC staff contact: Nadine Samter- Northwest Region - Seattle; 206-220-6350). The FTC thanks the offices of the Attorneys General of the States of Illinois, Colorado, and Pennsylvania, and the United States Postal Inspection Service, for their support and assistance in this matter.

State Police Magazine

Clinton Greenwell, doing business as The Police Bulletin, State Police Magazine, State Police Enforcers Yearbook, State Police Officers Yearbook, Firefighters News Journal, and Creative Publishing solicits money for advertising from small businesses throughout the United States, according to the complaint filed by the FTC. The complaint alleges that Greenwell, operating under a host of assumed names, misrepresented that the businesses authorized the ads to be placed in his publications, and therefore were obligated to pay for the ads, and misrepresented that he was a member of, or associated with, a police force or organization. (Complaint filed in U.S. District Court for the Southern District of Texas, Houston Division, on May 8, 2003. Federal District Judge Kenneth Hoyt granted a temporary restraining order and asset freeze the same day. FTC File No. 022 3252; Civil Action No. H-03-1553. FTC staff contact: W. David Griggs or Susan Arthur - Southwest Region - Dallas, 214-979-9378.)

Tamara Bell

The FTC alleges that defendant Tamara Bell created six nonprofit corporations - American Veterans' Council, Inc.; Children's AIDS Council, Inc.; Children's Relief Services, Inc.; Disabled Children's Charity, Inc.; Firefighters' Assistance Foundation, Inc.; and Police and Sheriffs' Support Fund, Inc. - to use as vehicles for soliciting donations from consumers. According to the FTC, the Anaheim, California-based corporations are sham nonprofits created and controlled by unscrupulous fundraisers for their personal profit. While appearing on paper to be legitimate nonprofit organizations, in reality each of these corporations did little more than provide for-profit fundraisers with solicitation materials falsely touting nonexistent good work and a bank account in which to cash donation checks. According to the FTC, in their telephone solicitation scripts and in their brochures, the defendants made specific claims such as the American Veterans' Council has a scholarship/grant program to help veterans and their immediate families to become better educated, and the Disabled Children's Charity provides needy children with medical equipment such as braces and wheelchairs, when in fact the nonprofits undertook none of the described specific programs.

The FTC's complaint alleges that, in the course of conducting business, both Bell and the six entities misrepresent that: donations will go to a legitimate charitable organization; contributions will support programs in the donor's local community or will support particular programs; and donations to the entities are tax deductible. The complaint also alleges that Bell provided the means and instrumentalities for others to commit fraud.

To settle the FTC's charges, the corporate defendants are banned from telemarketing. The settlement futher prohibits Tamara Bell, in connection with soliciting contributions via telemarketing, from making material misrepresentations about how or where a donation will be used, and that a donation will be tax deductible. If Bell engages in telemarketing solicitation in the future, the settlement requires her to: (1) disclose how the contributions will be used for charitable purposes; (2) disclose that the solicitor is a professional fundraiser; and (3) disclose the city and state of the nonprofit's principal place of business. In addition, she must possess documents substantiating any claims made about charitable program services. The settlement contains a $100,000 suspended judgment, with an avalanche clause that allows the FTC to reopen the case if it is found that Bell made material misrepresentations about her financial condition. (Complaint and stipulated permanent injunction filed in the U.S. District Court for the Central District of California, Southern Division. FTC File No. 022-3306; Civil Action No. not available at press time. FTC staff contact: Tracy Thorleifson - Northwest Region - Seattle, 206-220-6350.)

Mitchell Gold et al. Settlement

In a previous action against Mitchell Gold et al., the FTC alleged that the defendants and their more than 70 fundraising subcontractors engaged in deceptive telephone solicitations for nonprofit organizations purporting to support, police, fire fighter, veterans and sick children. Earlier this spring, the individual defendants, Mitchell Gold, Patricia Good, Herbert Gold, Celia Gold, Jonathan P. Cohen, and Steven Chinarian settled the FTC charges. the settlement banned each of the defendants, except Chinarian, from fundraising and telemarketing activities. The settlement enjoined Chinarian from fundraising and required him to post a bond before engaging in telemarketing activities. Mitchell Gold is currently serving 96 months in federal prison, and Cohen is serving 37 months based on their guilty pleas to charges related to their fundraising business. On May 16, 2003, a federal court entered a default judgment against the now-defunct corporate defendants, U.S. Marketing, Inc., and North American Charitable Services, Inc. The judgment against U.S. Marketing is in the amount of $9,649,535 and against NACS in the amount of $14,154,492. These default judgments conclude the litigation, and all of the defendants in this alleged deceptive fundraising scheme are under order.

"OPERATION PHONEY PHILANTHROPY" PUBLIC EDUCATION CAMPAIGN

"Operation Phoney Philanthropy" also launches a nationwide public education campaign. People who donate to charities are vulnerable to fraudulent misrepresentations by professional fundraisers because donors do not receive anything in exchange for their contributions. Thus, it is harder for the donor to verify the truthfulness of a particular solicitation based solely on what is said over the phone or in the direct mail appeal. The FTC has prepared a series of consumer and business education materials with tips on reducing the risk of being victimized by deceptive solicitations. Included is a new publication for caregivers of older consumers, a brochure for nonprofit organizations considering hiring a professional fundraiser, and a one-page Charity Checklist. Copies of these publications are available from the FTC's Web site at: http://www.ftc.gov/charityfraud and from the FTC's Consumer Response Center, as well as from each state's charities regulator. To file a complaint or to get free information on wise giving, visit www.ftc.gov/charityfraud or call toll-free, 1-877-FTC-HELP (1-877-382-4357).

Tips for consumers and businesses include:

Be wary of appeals that tug at your heart strings, especially pleas involving patriotism and current events. Check with the organization to make sure your donation will support the programs described.

Ask for the name of the charity if a telemarketer does not provide it promptly.

Ask what percentage of the donation is used to support the causes described in the solicitation, and what percentage is used for administrative costs.

If the telemarketer claims that the charity will support local organizations, call the local groups to verify.

Avoid cash gifts. They can be lost or stolen. For security and tax record purposes, it is best to pay by check, made payable to the beneficiary, not the solicitor.

If you do not wish to be called again by a fundraiser, ask to be placed on that fundraiser's "do not call" list. The FTC's Telemarketing Sales Rule requires professional fundraisers to establish an in-house list of individuals who do not wish to be called again. If the fundraiser ignores your request, report the problem to the FTC.

Report suspicious solicitation calls. Call your state's charity regulator or the FTC at 1-877-FTC-HELP (1-877-382-4357). Make sure to include the name of the nonprofit or the fundraiser and information about what the donation was supposed to support.

The Commission vote to authorize staff to file the complaints in the appropriate district courts was 5-0. The Commission vote to authorize staff to file the proposed stipulated permanent injunction with Tamara Bell in the Central District of California was 5-0.

NOTE: The Commission authorizes the filing of a complaint when it has "reason to believe" that the law has been or is being violated, and it appears to the Commission that a proceeding is in the public interest. The complaint is not a finding or ruling that the defendants actually have violated the law. The case will be decided by the court.

NOTE: The stipulated permanent injunction is for settlement purposes only and does not constitute an admission by the defendant of a law violation. Stipulated permanent injunctions have the force of law when signed by the judge.

Copies of the complaints and the Bell settlement are available from the FTC's Web site at http://www.ftc.gov and also from the FTC's Consumer Response Center, Room 130, 600 Pennsylvania Avenue, N.W., Washington, D.C. 20580. The FTC works for the consumer to prevent fraudulent, deceptive, and unfair business practices in the marketplace and to provide information to help consumers spot, stop, and avoid them. To file a complaint, or to get free information on any of 150 consumer topics, call toll-free, 1-877-FTC-HELP (1 877-382-4357), or use the complaint form at http://www.ftc.gov. The FTC enters Internet, telemarketing, identity theft, and other fraud-related complaints into Consumer Sentinel, a secure, online database available to hundreds of civil and criminal law enforcement agencies in the U.S. and abroad.